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Recently I received a very thoughtful comment from a subscriber to my Oil & Energy Investor service.
I find your updates very helpful in cutting through the chatter. After spending a large amount of time and resources trying to understand petroleum related energy, I developed this question.
If the budgets of OPEC and Non-OPEC oil dependent governments need in excess of $100bbl pricing to sustain their budgets, doesn't this also signal that increases in the longer term will exceed that pricing?
I understand capital resets, restructures, and bad bond debts will be had. However, since gold is "off the balance" sheets for fiscal responsibility, I surmise that black gold is not and therefore due to its worldwide availability, this consumable will act as an asset class to sustain dependent governments in the long run.
While 2015 and 2016 will likely see WTI prices range from $55 to $75 a barrel, I am developing an idea that 2017 and beyond will be significant or at least until other larger sources such as Nat Gas or Nuclear energy can ramp up.
Sorry for the long comment but what's the longer play here? Is it oil, nat gas, or nuclear?
Thanks for such an astute set of observations, Ramon. Your insightful comments correctly point to three considerations all energy investors need to heed moving forward.
These considerations are issues I have addressed in previous articles, but it's nice to take this opportunity to bring them together all in one place.
Oil Price Forecast: OPEC's "Non-Move" Changed Everything
First, there is a growing disconnect between what some major international oil producers need in the way of prices to balance their budgets and what the market can actually justify.
Traditionally, this tenuous balance has been maintained by cutting supply. However, OPEC's "non-move" on Thanksgiving last year changed this trajectory, at least in the near term.
Today it's all about defending market share and quite a bit less about balancing budgets. Here's what I mean…
The pivotal issue of the cost per barrel of oil has taken a back seat to cutting export volumes. As a result, we are certain to witness more protracted fiscal crises in the future, since the overall pricing picture is no longer based on what the producer needs in the way of revenue.
And yes, Ramon, you are correct: under the "old rules" prices could move up to meet budgetary needs. The main international producers were called the "price makers" for a reason.
But not anymore.
About the Author
Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk assessment, and emerging market economic development. He serves as an advisor to many U.S. governors and foreign governments. Kent details his latest global travels in his free Oil & Energy Investor e-letter. He makes specific investment recommendations in his newsletter, the Energy Advantage. For more active investors, he issues shorter-term trades in his Energy Inner Circle.